U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended October 2, 1999
___ Transition report under Section 13 or 15(d) of the Exchange Act for the
transition period from _____ to ____
Commission file number: 1-9009
Tofutti Brands Inc.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 13-3094658
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(State of Incorporation) (I.R.S. Employer
Identification No.)
50 Jackson Drive, Cranford, New Jersey 07016
--------------------------------------------
(Address of Principal Executive Offices)
(908) 272-2400
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(Issuer's Telephone Number, Including Area Code)
___________________________________________________
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
As of October 22, 1999 the Issuer had 6,299,567 shares of Common Stock, par
value $.01, outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
TOFUTTI BRANDS INC.
INDEX
Page
----
Part I - Financial Information:
Condensed Balance Sheets - October 2, 1999
(Unaudited) and December 26, 1998 3
Condensed Statements of Operations -
(Unaudited) - Thirteen and forty
week periods ended October 2, 1999 and
thirteen and thirty-nine week periods ended
September 26, 1998 4
Condensed Statements of Cash Flows (Unaudited) -
Forty week period ended October 2, 1999 and
thirty-nine week period ended September 26, 1998 5
Notes to Condensed Financial Statements -
(Unaudited) 6-7
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8-12
Part II - Other Information:
Item 4. Submission of Matters to a Vote
of Shareholders 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
2
TOFUTTI BRANDS INC.
Condensed Balance Sheets
(Unaudited)
(000's omitted)
October 2, December 26,
1999 1998
---- ----
Assets
Current assets:
Cash and cash equivalents $1,408 407
Accounts receivable (net of allowance
for doubtful accounts of
$178 in 1999 and $120 in 1998) 1,493 985
Inventories (Note 3) 636 613
Prepaid expenses 9 13
Deferred income taxes (Note 4) -- 335
------ -----
Total current assets 3,546 2,353
Deferred income taxes (Note 4) 131 180
Other assets 119 119
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Total assets $3,796 2,652
====== =====
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable - current portion $ 21 19
Accounts payable 225 85
Accrued expenses 314 240
Income taxes payable (Note 4) 129 19
---- -----
Total current liabilities 689 363
Note payable 13 29
-- -----
Total liabilities 702 392
Stockholders' equity:
Preferred stock -- --
Common stock 63 62
Paid-in capital 3,714 3,631
Accumulated deficit (683) (1,433)
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Total stockholders' equity 3,094 2,260
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Total liabilities and stockholders' equity $3,796 2,652
====== =====
See accompanying notes to condensed financial statements.
3
TOFUTTI BRANDS INC.
Condensed Statements of Operations
(Unaudited)
(000's omitted)
Thirteen Thirteen Forty Thirty-nine
weeks weeks weeks weeks
ended ended ended ended
10/2/99 9/26/98 10/2/99 9/26/98
------- ------- ------- -------
Net sales $3,252 2,634 9,326 6,709
Cost of sales 2,029 1,728 5,945 4,356
----- ----- ------ -----
Gross profit 1,223 906 3,381 2,353
----- ------ ----- -----
Operating expenses:
Selling 358 324 1,020 829
Marketing and sales promotion 42 64 146 163
Research and development 99 85 268 249
General and administrative 215 191 699 651
---- --- ---- ---
714 664 2,133 1,892
---- --- ------ -----
Operating income 509 242 1,248 461
Interest expense (income) (4) 2 -- 8
Income before income taxes 513 240 1,248 453
Income taxes (benefit) 203 (32) 497 (10)
--- --- ----- ----
Net income $310 272 751 463
==== ==== ===== ====
Net income per share:
Basic $.05 .04 .12 .07
Diluted $.04 .04 .10 .07
Weighted average number of shares
outstanding:
Basic 6,296 6,184 6,228 6,184
Diluted 7,738 6,544 7,378 6,659
See accompanying notes to condensed financial statements.
4
TOFUTTI BRANDS INC.
Condensed Statements of Cash Flows
(Unaudited)
(000's omitted)
Forty Thirty-nine
weeks weeks
ended ended
10/2/99 9/26/98
------- -------
Cash flows from operating
activities, net $ 996 116
Cash flows from investing activities 5 --
Cash flows from financing activities -- --
----- ----
Net increase in cash and
cash equivalents 1,001 116
Cash and cash equivalents
at beginning of period 407 54
----- ----
Cash and cash equivalents
at end of period $1,408 170
====== ====
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 4 7
Income taxes -- --
See accompanying notes to condensed financial statements.
5
TOFUTTI BRANDS INC.
Notes to Condensed Financial Statements
(Unaudited)
(000's omitted)
(1) Description of Business
Tofutti Brands Inc. ("Tofutti" or the "Company") is engaged in one business
segment, the development, production and marketing of non-dairy frozen
desserts and other food products.
(2) Basis of Presentation
The accompanying financial information is unaudited, but, in the opinion of
management, reflects all adjustments (which include only normally recurring
adjustments) necessary to present fairly the Company's financial position,
operating results and cash flows for the periods presented. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. The financial
information should be read in conjunction with the audited financial
statements and notes thereto for the year ended December 26, 1998 included
in the Company's Annual Report on Form 10-KSB filed with the Securities and
Exchange Commission. The results of operations for the forty week period
ended October 2, 1999 are not necessarily indicative of the results to be
expected for the full year.
The Company's fiscal year is usually the fifty-two week period which ends
on the last Saturday in December. The 1999 fiscal year is a fifty-three
week year which ends on January 1, 2000. The Company has included the extra
week in the 1999 fiscal year in the first quarter, resulting in a fourteen
week quarter, which ended on April 3, 1999.
Certain reclassifications have been made to the December 26, 1998 balance
sheet to conform to the October 2, 1999 presentation.
(3) Inventories
The composition of inventories is as follows:
October 2, Dec. 26,
1999 1998
---- ----
Raw materials and packaging
supplies $204 382
Finished goods 432 231
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$636 613
==== ===
6
(4) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carry forwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
7
TOFUTTI BRANDS INC.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results during the periods included in the accompanying condensed financial
statements.
The discussion and analysis which follows in this Quarterly Report and in other
reports and documents of the Company and oral statements made on behalf of the
Company by its management and others may contain trend analysis and other
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934 which reflect the Company's current views with respect to
future events and financial results. These include statements regarding the
Company's earnings, projected growth and forecasts, and similar matters which
are not historical facts. The Company reminds stockholders that forward-looking
statements are merely predictions and therefore are inherently subject to
uncertainties and other factors which could cause the actual future events or
results to differ materially from those described in the forward-looking
statements. These uncertainties and other factors include, among other things,
business conditions and growth in the food industry and general economies, both
domestic and international; lower than expected customer orders; competitive
factors; changes in product mix or distribution channels; and resource
constraints encountered in developing new products. In addition, difficulties in
completing remediation of the year 2000 issues by the Company's customers or
suppliers may have a material adverse affect on the Company and its operations.
The forward-looking statements contained in this Quarterly Report and made
elsewhere by or on behalf of the Company should be considered in light of these
factors.
The Company has attempted to identify additional significant uncertainties and
other factors affecting forward-looking statements in Exhibit 99 incorporated by
reference to this Quarterly Report ("Additional Information Regarding Forward
Looking Statements"). The Company will provide copies of Exhibit 99 to
stockholders free of charge upon receipt of a written request submitted to the
Company's Secretary at Tofutti Brands Inc., 50 Jackson Drive, Cranford, New
Jersey 07016. Stockholders may also obtain copies of Exhibit 99 for a nominal
charge from the Public Reference Section of the Securities and Exchange
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 or at the
Commission's website: http://www.sec.gov.
Results of Operations
Thirteen Weeks Ended October 2, 1999 Compared with Thirteen Weeks Ended
September 26, 1998
The Company's fiscal year is usually the fifty-two week period which ends on the
last Saturday in December. The 1999 fiscal year is a fifty-three week year which
ends on January 1, 2000. The
8
Company included the extra week in the 1999 fiscal year in its first quarter,
resulting in a fourteen week quarter, which ended on April 3, 1999.
Net sales for the thirteen weeks ended October 2, 1999 were $3,252,000, an
increase of $618,000 or 23% from the sales level realized for the thirteen weeks
ended September 26, 1998. In the 1999 period, sales of non-dairy frozen desserts
increased by $426,000, while food product sales increased by $192,000. As a
result of the increase in sales, the Company's gross profit for the current
quarter increased by $317,000, and its gross profit percentage increased to 38%
compared to 34% for the same period last year. Due to the increased expenses
associated with the introduction of new products, the Company did not achieve
its historical gross margins of approximately 40% during this period and expects
that its gross margins during the remainder of 1999 and the beginning of 2000
will continue to be affected by these introductory expenses.
The Company anticipates that sales during the fourth quarter of the current
fiscal year and the first quarter of 2000 will continue to improve over prior
comparable periods due to the introduction of new products and expanded
distribution. Such increases are dependent upon market acceptance of these
products, for which no assurance can be given.
Selling expenses increased to $358,000 for the current fiscal quarter compared
with $324,000 for the comparable period in 1998. This increase was due primarily
to higher outside warehouse rental, freight and commission expenses associated
with the higher sales level in 1999 and an increase in trade show costs.
Marketing and sales promotion decreased to $42,000 in the 1999 period from
$64,000 in 1998 due primarily to a decrease in spending for artwork and plates
for new product package designs and a decrease in point-of-sale materials.
Research and development costs, which consist principally of salary expenses,
increased to $99,000 for the thirteen weeks ended October 2, 1999 compared to
$85,000 for the comparable 1998 period. The increase consisted mainly of
start-up costs incurred at new co-packing facilities, including additional
kosher supervision costs, during the third quarter of 1999.
General and administrative expenses increased slightly to $215,000 for the
current period compared with $191,000 for the comparable period in 1998, due
primarily to an increase in payroll costs.
The Company's tax year ends on July 31st, its former fiscal year. Due to the
timing difference between the end of the fiscal and tax year, the Company, on
its quarterly and year end reports, must make estimates as to its state and
federal tax liabilities.
To the extent the Company generates income for financial reporting purposes, it
will be required to provide for federal and state tax expense. Although the
Company began paying state income taxes in 1999, the Company will not be
required to pay federal income tax until such time as it utilizes its remaining
federal net operating loss carryforwards and tax credits, which the Company
anticipates will occur for tax year ending July 31, 2000. Accordingly, income
tax expense for the thirteen week
9
period ended October 2, 1999 was $203,000 compared to an income tax benefit of
$32,000 for the comparable period in 1998.
Forty Weeks Ended October 2, 1999 Compared with Thirty-Nine Weeks Ended
September 26, 1998
Net sales for the forty weeks ended October 2, 1999 were $9,326,000, an increase
of $2,617,000 or 39% from the sales level realized for the thirty-nine weeks
ended September 26, 1998. In the 1999 period sales of non-dairy frozen desserts
increased by $1,789,000, while food product sales increased by $828,000. As a
result of the increase in sales, the Company's gross profit for the current
period increased by $1,028,000, while its gross profit percentage increased
slightly to 36%, compared to 35% for the same period last year.
Selling expenses increased by $191,000 to $1,029,000 for the current fiscal
period compared with $829,000 for the comparable period last year. This increase
was due primarily to higher outside warehouse rental, freight and commission
expenses associated with the higher sales level in 1999 and an increase in trade
show costs. Marketing and sales promotion expenses decreased slightly to
$146,000 from $163,000 in 1998. The Company is not currently engaged in any
major marketing programs.
Research and development costs, which consist principally of salary expenses,
increased slightly to $268,000 for the forty weeks ended October 2, 1999
compared to $249,000 for the comparable 1998 period.
General and administrative expenses increased to $699,000 for the current period
compared with $651,000 for the comparable period in 1998, due primarily to an
increase in payroll costs.
Income tax expense for the forty week period ended October 2, 1999 was $497,000
compared to an income tax benefit of $10,000 for the comparable period in 1998.
Liquidity and Capital Resources
The Company's working capital increased by $867,000 to $2,857,000 at October 2,
1999, from $1,990,000 at December 26, 1998. Accounts receivable increased to
$1,493,000 at October 2, 1999, an increase of $508,000 from December 26, 1998,
reflecting the Company's significantly higher sales. Inventories increased
slightly by $23,000, reflecting a net reduction in raw material and packaging
inventories versus an increase in finished goods inventory.
Prepaid expenses decreased slightly from $13,000 at December 26, 1998 to $9,000
at October 2, 1999. Current deferred taxes decreased by $335,000 from December
26, 1998, reflecting the current year's expense provision for federal income
taxes. Non-current deferred income taxes and other assets were unchanged at
October 2, 1999 from December 26, 1998.
10
Accounts payable increased by $140,000 to $225,000 at October 2, 1999, and
accrued liabilities increased from December 26, 1998 by $74,000 to $314,000 at
October 2, 1999, reflecting the higher sales level. Income taxes payable
increased by $110,000 from December 26, 1998 to $129,000 at October 2, 1999
reflecting the current year's provision for state income taxes.
The Company's paid in capital increased by $83,000 at October 2, 1999 due to the
exercise of stock options during the fiscal period.
The Company does not presently have any material capital commitments and
contemplates no material capital expenditures in the foreseeable future. The
Company believes it will be able to fund its operations for the balance of 1999
and for fiscal year 2000 from its current resources.
The Year 2000 Issue
The Company has completed a comprehensive review of its computer systems to
identify the systems that could be affected by the Year 2000 ("Y2K") issue.
Substantially all of the Company's manufacturing is performed by third-party
co-packers, and the Company's financial systems are PC-based purchased software.
Consequently, management presently believes that due to the lack of date
sensitive computer systems and applications currently in use, the Y2K issue will
not pose significant operational problems for the Company's computer systems.
In addition, the Company has contacted its major suppliers and vendors seeking
information about their internal compliance efforts. Upon review, the Company
believes that most of its major suppliers and co-packers will be Y2K compliant
and any non-compliance by its suppliers and co-packers will not have a
significant adverse effect upon the Company's operations.
Therefore, the Company to date has not nor does it expect to develop any
contingency plans relating to the Y2K issue. Costs of addressing the Y2K issue
have not been material to date and, based on information gathered to date from
the Company and its vendors, are not currently expected to have a material
adverse impact on the Company's financial position, results of operations or
cash flows. However, the Company could be subject to risks should the Company or
a third party vendor or service provider be unable to resolve issues related to
the Y2K.
Other Matters
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosure about
Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131
establishes standards for the way public business enterprises report information
about operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in financial
reports issued to shareholders. It also establishes standards for disclosures
about products and services, geographic areas and major customers. SFAS 131 is
effective for financial statements for
11
fiscal years beginning after December 15, 1997. Financial statement disclosures
for prior periods are required to be restated. The adoption of SFAS 131 has had
no impact on the Company's results of operations, financial position or cash
flows. The Company operates in one business segment, the development, production
and marketing of TOFUTTI brand non-dairy frozen desserts and other food
products. Management does not receive, nor does the Company generate, discrete
financial operating results for any portion of the business other than for
product sales.
12
PART II - OTHER INFORMATION
TOFUTTI BRANDS INC.
Item 4. Submission of Matters to a Vote of Shareholders
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1* Certificate of Incorporation, as amended through February 1986.
3.1.1** March 1986 Amendment to Certificate of Incorporation.
3.2* By-laws.
4.1*** Copy of the Registrant's Amended 1993 Stock Option Plan.
27 Financial Data Schedule (filed via EDGAR only).
99 **** Additional Information Regarding Forward-Looking Statements.
(b) Reports on Form 8-K filed during the last quarter of the period covered by
this report:
None.
_____________________
* Filed as an exhibit to the Registrant's Form 10-K for the fiscal year ended
July 31, 1985 and hereby incorporated by reference thereto.
** Filed as an exhibit to the Registrant's Form 10-K for the fiscal year ended
August 2, 1986 and hereby incorporated by reference thereto.
*** Filed as an exhibit to the Registrant's Form S-8 (Registration No.
333-79567) and hereby incorporated by reference thereto.
**** Filed as an exhibit to the Registrant's Form 10-QSB for the quarterly
period ended July 3, 1999.
13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TOFUTTI BRANDS INC.
(Registrant)
/s/David Mintz
---------------
David Mintz
President
/s/Steven Kass
--------------
Steven Kass
Chief Financial Officer
Date: October 26, 1999
14
EXHIBIT INDEX
Exhibit
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3.1* Certificate of Incorporation, as amended through February 1986.
3.1.1** March 1986 Amendment to Certificate of Incorporation.
3.2* By-laws of the Registrant.
4.1*** Copy of the Registrant's Amended 1993 Stock Option Plan.
27 Financial Data Schedule (filed via EDGAR only).
99 **** Additional Information Regarding Forward-Looking Statements.
________________
* Filed as an exhibit to the Registrant's Form 10-K for the fiscal year ended
July 31, 1985 and hereby incorporated by reference thereto.
** Filed as an exhibit to the Registrant's Form 10-K for the fiscal year ended
August 2, 1986 and hereby incorporated by reference thereto.
*** Filed as an exhibit to the Registrant's Form S-8 (Registration No.
333-48605) filed March 25, 1998 and hereby incorporated by reference
thereto.
**** Filed as an exhibit to the Registrant's Form 10-QSB for the quarterly
period ended July 3, 1999.